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We break down change in Electronic Arts' stock into 3 factors:
Electronic Arts' Stock Price = (Revenue x Margins ÷ No. of Shares) x P/E MultipleNotably, from fiscal 2015-2019, Electronic Arts' shares have gained primarily from an increase in margin and revenues.However, there has been a slight decline in the earnings multiple over the period.
Adjusted Net Income Margin [B]
Price To Earnings Multiple
Total revenue increased by 10% to $4.95 billion in fiscal 2019 from $4.52 billion in fiscal 2015. Adjusted net income margin grew by 907 bps to 27% in fiscal 2019 from 18% in fiscal 2015. Price to earnings multiple declined by 0.6% to 23.3 in fiscal 2019 from 23.3 in fiscal 2015.
#1. The biggest change in revenue has been in the company's Services business, which has grown >70% from fiscal 2015 to fiscal 2019, while the Products business saw decline of close to 40% during the same period.
Total Revenue = A + B
Electronic Arts generates its revenues from two sources ~ Products and Services.Product refers to revenue generated from the sale of gaming titles such as FIFA, Madden, and others. Products revenue declined from $2.6 billion in fiscal 2015 to $1.6 billion in fiscal 2019. The segment accounted for 32% of the company’s total sales in fiscal 2019.Services represents the revenue from downloadable content, subscriptions, and other services that are generally accessed in-game.Services revenue grew from $1.9 billion in fiscal 2015 to $3.4 billion in fiscal 2019. The segment accounted for 68% of the company's total revenues in fiscal 2019.
#2. Adjusted net income grew with Electronic Arts' revenues from fiscal 2015 to fiscal 2019, led by strong growth in margin.
Adjusted Net Income = A x B
Adjusted Net Income Margin (A)
Total Revenue (B)
Electronic Arts' adjusted net income grew from $808 million in fiscal 2015 to $1.34 billion in fiscal 2019.This can be attributed to higher revenues and growth in adjusted net income margin. Adjusted net income margin grew from 17.9% in fiscal 2015 to 27.0% in fiscal 2019.
#2.2 Adjusted EPS has also seen strong growth, led by better margin and lower share count.
Adjusted EPS = A ÷ B
Adjusted Net Income (A)
Shares Outstanding (B)
Adjusted EPS grew from $2.49 in fiscal 2015 to $4.36 in fiscal 2019.
Shares outstanding declined from 325 million in fiscal 2015 to 306 million in fiscal 2019.
#3. Price To Earnings Multiple for Electronic Arts saw a modest contraction from 23.4x in fiscal 2015 to 23.3x in fiscal 2019
Price To Earnings Multiple = A ÷ B
Price at the end of fiscal (A)
Adjusted EPS (B)
75% growth in Electronic Arts' stock from fiscal 2015 to fiscal 2019 driven by:Revenue growth of about 10%, primarily due to >70% increase in Services business.Adjusted net income margin expansion of over 900 bps, and Slight reduction in shares outstanding.Growth was countered by:A modest contraction in the price to earnings multiple.